Saturday, January 14, 2017

Weekend reading links

Gartner, a tech research company, estimates that 5.5m connected devices a day came online in 2016. It forecasts that their total number will more than triple to 20.8bn by 2020 as the “ internet of things” becomes a reality. According to IBM, we already generate some 2.5 quintillion bytes of data every day, meaning that about 90 per cent of all data in the world has been created in the past two years. To see the effect that this data use can have, just take a look at the advertising industry. Facebook and Google sucked up an astonishing 85 cents of every new dollar spent on digital advertising in the US in the first quarter of 2016. Their success is based on their ability to use data to target advertising at the likeliest consumers.

2. Economist argues in favour of Vienna as the "city of the century", built on the fecundity of ideas and art that emerged in the late Hapsburg era of Franz Joseph I. Sample this,

Often the Viennese intellectuals leapt ahead by transferring knowledge gained in one discipline to others, gloriously indifferent to the mind-forged manacles that have come to stifle modern academia and research. In America, several Viennese-trained devotees of Freud used the tools of psychoanalysis to revolutionise business. Ernest Dichter, author of “The Strategy of Desire,” transformed the fortunes of companies through marketing that purposely tapped into consumers’ subliminal desires.

Another example was Paul Lazarsfeld, the founder of modern American sociology. Born of Jewish parents, he studied maths in Vienna, completing his doctorate on Einstein’s gravitational theory, and thereafter applied his expertise in data and quantitative methods to what became known as opinion, or market research—finding out what people really feel about anything from television programmes to presidential candidates. In Vienna in 1931 he conducted the first scientific survey of radio listeners, and also co-wrote a revolutionary study of the devastating social and psychological impacts of unemployment. His team of investigators conducted what is now called “field research”, meticulously recording the results of face-to-face interviews with laid-off factory workers in the town of Marienthal. Moving to America in 1933, Lazarsfeld went on to found the Columbia University Bureau for Social Research. His team was the first to use focus groups, developed with Dichter, his one-time student, and statistical analysis to delve into the mysteries of voter and consumer preferences or the impact of the emerging mass media. Lazarsfeld and others thus helped revivify moribund, antiquarian modes of inquiry, and re-equip them with the latest Viennese techniques, often saving entire Western intellectual traditions from decrepitude, or possibly extinction.

3. Most, if not all of Donald Trump's bombast is plain disgusting. But his tweet campaign on automobile manufacturers operating plants in Mexico may be a not fully undesirable antidote for a business world where commercial considerations override all else. If initial signs are any indication, this could provide a tipping point in getting businesses to incorporate non-financial considerations in their investment decisions.

In recent days Trump has initiated a similar tirade against predatory pricing techniques of pharmaceutical companies. His comments that pharma companies were "getting away with murder" wiped off $24 bn from the value of Nasdaq listed biotech market capitalisation. Even if you do not agree with his approach, one cannot but feel like supporting Trump on this campaign.

In other words, Trump would have turned back the remorseless march of the market's logic in economic decision making. A desirable outcome, though achieved through questionable means and with potential path dependent incentive distortions!

5. The cost of carrying cash in India, even without demonetisation, is very high!

6. One of the stories going on around demonetisation has been about the Jan Dhan bank account being used to launder black money. This, advocates argue, has been a major reason why the vast majority of black money has found its way back to the formal banking system, as reflected in the near complete return of 500 and 1000 rupee notes.

But a Livemint analysis appears to refute this. It finds that the Jan Dhan deposits rose from Rs 46,636 Cr on 09.11.2016 to Rs 74,322 Cr on 30th November and Rs 70,070 Cr on 4th January, 2017. To put this share in perspective, it increased from 0.05% to 0.45% of the aggregate deposits of schedule commercial banks between September 2014 and October 2016, reached a peak of 0.71% in November 2016 and declined to 0.68% again in December 2016. Rounding error!

7. Sundeep Khanna has a nice article which argues that instead of courting Apple, the Government of India should be trying to attract Tesla to invest in the country. I had blogged earlier about the futility of trying to attract Apple. But this is a teachable point about the problems with industrial policy. It is deeply vulnerable to ongoing fads, which leads to governments backing the wrong horses,

If concessions have to be given to persuade global companies to set up manufacturing in India, they are better off given to those at the forefront of technologies that will drive the future... There are many... companies pushing the boundaries of technology, which may be both easier to woo and whose multiplier effect may be far greater in the long term. As an example there is Cortex Composites, the Draper Associates-funded California-based developer of a new type of cement called Cortex which has uses like canal lining, ditch lining, slope protection, erosion control and lining ponds. It replaces expensive mixing trucks in places that need just thin layers of cement. There is also a clutch of innovative 3D printing companies like 3D Hubs, Carbon, Made in Space or Voxel8. For hardcore manufacturing there is Daijiang Innovations (DJI), the world’s most successful consumer drone-maker based in China. Country strategies have to be based on a long-term vision. The smartest countries are now looking at building ecosystems around artificial intelligence (AI), which is expected to have the same impact on the world as the internet or electricity before that.

8. Mint examines the case for a Universal Basic Income (UBI) guarantee for India. The different scenarios are captured below.

I have been coming to the view that a UBI may be worth considering in countries or areas where state is virtually absent or so weak as to be missing. This would not apply to India. Apart from the numerous very compelling substantive arguments against UBI and the politics surrounding the substitution of existing in-kind subsidies, some of these numbers being estimated (including in the Economic Survey) are like the optimistic "expectations-stretching" that happens when you are pushed against the wall and have no other hope.

For example, consider the math surrounding the 5.2%. The assumption is that you would squeeze out all those increments to the tax-to-GDP ratio (itself questionable) and then divert them all to a UBI, over-riding other far more important claims like increasing the share of GDP spend on health care, infrastructure spending etc. It is not only snake-oil policy prescription, it is also plain bad economics.

9. FT has an excellent investigation on the maritime ambitions of China. The importance of China in the global maritime market is stunning,

Investments into a vast network of harbours across the globe have made Chinese port operators the world leaders. Its shipping companies carry more cargo than those of any other nation — five of the top 10 container ports in the world are in mainland China with another in Hong Kong. Its coastguard has the globe’s largest maritime law enforcement fleet, its navy is the world’s fastest growing among major powers and its fishing armada numbers some 200,000 seagoing vessels...

Beijing’s shipping lines deliver more containers than those from any other country, according to data from Drewry, the shipping consultancy. The five big Chinese carriers together controlled 18 per cent of all container shipping handled by the world’s top 20 companies in 2015, higher than the next country, Denmark, the home nation of Maersk Line, the world’s biggest container shipping group. In terms of container ports, China already rules the waves. Nearly two-thirds of the world’s top 50 had some degree of Chinese investment by 2015, up from about one-fifth in 2010... And those ports handled 67 per cent of global container volumes, up from 42 per cent in 2010, according to Lloyd’s List Intelligence, the maritime and trade data specialists. If only containers directly handled by Chinese port operators are measured, the level of dominance is reduced but still emphatic. Of the top 10 port operators worldwide, Chinese companies handled 39 per cent of all volumes, almost double the second largest nation group... since 2010, Chinese and Hong Kong companies have completed or announced deals involving at least 40 port projects worth a total of about $45.6bn

The modus operandi is simple - give loans and construct ports in developing countries, invoking some commercial interests. But its military and political dimensions are undeniable,

“There is an inherent duality in the facilities that China is establishing in foreign ports, which are ostensibly commercial but quickly upgradeable to carry out essential military missions,” says Abhijit Singh, senior fellow at the Observer Research Foundation in New Delhi. “They are great for the soft projection of hard power.”...

China’s naval strategy is aimed primarily at denying US aircraft carrier battle groups access to a string of archipelagos from Russia’s peninsula of Kamchatka to the Malay Peninsula in the south, a natural maritime barrier called the “first island chain” within which China identifies its strategic sphere of influence. Another focus is the string of artificial islands that Beijing has dredged out of coral reefs and rocks to help reinforce China’s claim to most of the South China Sea, putting it on a collision course with neighbours from Vietnam to the Philippines, as well as the US. The artificial islands have been equipped with landing strips and a US think-tank recently said, after analysis of satellite images, that Beijing appeared to have installed anti-aircraft guns, anti-missile systems and radar facilities on them.

India, in particular should be concerned at the Chinese built ports in Gawdar (Pakistan) and Hambantota (Sri Lanka), both of which have undeniable security and force projection dimensions. Forget a "string of pearls" around India, China appears to be a stringing one to encircle the globe itself!

10. Even as MS Dhoni relinquished captaincy, I came across this Mark Nicholas article,

He talked about chasing as if he were a Roman imperator waiting upon Nearer Gaul. Take it to the point where they are more scared than you, was his theme. ... the power of his personality... imposes himself upon you. It is an intimidation of sorts, a sense of ownership of the moment that creates doubt, fear and awe in the opponent. If you are left bowling to Dhoni at the death, you are not - consciously or subconsciously - backing yourself. Worse still, you are probably backing him.

11. Finally, Virat Kohli is the flavour of the cricket season. I've been reluctant to bracket him with Tendulkar for a reason. If you watch Virat close enough, apart from admiring his breathtaking stroke play, you could also come away with the feeling that those strokes are born out of a talent for exceptional hand-eye co-ordination. I can think of only Brian Lara and Virender Sehwag with comparable talent. But such talent based skills atrophy far quickly with age than a more learned technique. Just watch Virat execute the cover drive (especially on spinners) with quick-silver reflexes and compare it with the same stroke of say, Tendulkar, which is simpler (and graceful) and has fewer moving parts.

To put Kohli in perspective, Sehwag was no less influential and feared, and arguably more destructive, in the 2008-10 period. Sehwag was aged 30-32 in this period. To be fair to Kohli, he appears to have realised his potential earlier than Sehwag, at the age of 27. So, maybe he will have a longer period of dominance. But contrast this with Tendulkar's last period of influence, 2007-10, when he was 34-37.

The one area where he seems to clearly score over even Tendulkar is, surprisingly, his temperament and his ability to play the percentage game in the shorter and far riskier formats of the game. This graphic of T20 performance (as well as his average in successful one day chases) is no less stunning than Bradman's average.